RESULT & PERFORMANCE
On behalf of the Board of Directors, I am pleased to present the Annual Report of Nestlé (Malaysia) Berhad for the fi nancial year ended 31 December 2008.

The year under review will go down in our corporate history as one of the most trying we have seen in recent times. The levels of volatility and turmoil globally have not been experienced since the Great Depression and we are all clearly in uncharted territory.

Riding out the storm is of the essence, as the fi nancial meltdown of leading global economies has seen the tentacles of the fi nancial crisis reaching out and impacting all economies across the globe thus curtailing the development of smaller economies that are dependent on the manufacturing and exports sectors for economic sustainability.

I am pleased to say that, notwithstanding the external circumstances, the strategic direction and vision of the Group has helped to deliver its objectives, and for the 2008 fi nancial year, we achieved a turnover of RM3.9 billion; representing a 13.5% increase from the previous fi nancial period.

This is a very commendable performance, as we have been faced with uncertainty and challenges like never before. Due recognition must be given to our employees who had worked hard to protect profi ts and ensure that all other fi nancial indicators are healthy. We are balancing our short and long-term objectives to deliver a steady and sustainable growth; ensuring strong returns for our shareholders, despite the diffi cult operating environment.

I am just as pleased to report that the Group has continued to achieve strong top and bottom line growth; a testament to the sound policies and strategies in place, which have helped buffer the vagaries of the commodities market and slower economic growth.

One of the worthy achievements during the year under review was the market expansion of the Popularly Positioned Products (PPP) range which offers Malaysians nutritionally balanced products at more affordable prices. This is part of our on-going commitment to provide affordable nutrition and taste to all levels of society, as part of our Corporate Responsibility commitment while supporting the Government’s efforts to improve the nutritional status of all Malaysians. Some of the products in the range are NESTUM Sarapan Berkhasiat whole grain cereal, NESPRAY CERGAS nutritious milk powder and MILO Ready-to-Drink 200ml.

The year under review has also seen Made-in-Malaysia Halal products making its way to shelves in Switzerland, France and the Netherlands. The exports sector continues to grow and now contributes 24% to the Group’s total turnover. This is an area we will continue to leverage on, as Nestlé Malaysia is not only the Centre of Excellence for Halal for the Nestlé Group, but also in the forefront for the development of the nation’s Halal Hub agenda with focus on Halal food products.

The operating profi t margin at 12.0% remains fl at against last year. Heavy capital expenditure to support the business expansion has resulted in higher fi nancing costs, therefore lowering the profi t margin before tax by 20 bps. Lower tax expenses, stemming from the Government tax incentives, nudged the profi t margin after tax from 8.5% to 8.8% of the turnover for the fi nancial period just ended.

Continuous innovation and renovation resulted in the Group steering ahead of the competition by offering high quality, tasty and nutritious products. Our global investments in research and development (R&D) clearly shows Nestlé’s commitment in innovating and renovating products based on scientifi c evidence and trials. When we convert this knowledge into products, consumers benefi t from the nutritional value while Nestlé is able to grow its business in a dynamic and sustainable manner.

We are in full support of the Government’s efforts to encourage healthier diets and active lifestyles to help counter problems associated with obesity, diabetes and cardiovascular diseases. We have strived to improve our products’ profi le to complement the Government’s efforts to create a healthier population. We have made signifi cant progress in improving the nutritional profi le of our range of products by reducing sugar, sodium and fats, and we will continue to do so.

I am also pleased to report that we have intensifi ed our efforts to create shared value for society by focusing our Corporate Responsibility efforts on nutrition, water and rural development. This will help us address the issues in nutrition and health, poverty reduction as well as food security for the future.

As recognition to our work and commitment towards corporate responsibility in Malaysia, the Company won the inaugural StarBiz-ICR Malaysia Awards 2008 in two (2) categories: Marketplace and Community.

We were also awarded for best social reporting by ACCA Malaysia Environmental and Social Reporting Awards (MESRA), as recognition for our efforts in reporting our commitment in education, community development, the environment, and on our stakeholder engagement.

This reinforces our commitment to create shared value not only for our shareholders but also the community at large.

Equally important is the work we do for society. I am pleased to report that our first stand-alone report on our Corporate Responsibility commitment last year received good response and we have already published a second report which outlines our work in education, community development, the environment, global partnerships as well as employee engagement.

Our efforts to engage our stakeholders more effectively and gather their understanding and expectations of our long term Corporate Responsibility concept of “Shared Value Creation” culminated in a one-day dialogue session by senior representatives from local and international NGOs - one of three similar dialogues commissioned by Nestlé S.A. and conducted by a UK-based independent third party consultancy, AccountAbility, which also took place in Washington (USA) and Geneva (Switzerland).

DIVIDENDS
In view of our sustained strong performance in 2008, the Board has recommended a fi nal net dividend of 80 sen per share, giving a total net dividend proposed and declared for the fi nancial year of 191.19 sen per share; a 68% increase from 2007. I am pleased to add that this is the highest ever in the Group’s history.

PROSPECTS
The current year will be one of the most challenging to-date, as economic uncertainties coupled with volatile commodity prices, tight liquidity and lower consumer spending will undoubtedly squeeze margins. The Government’s swift action to reduce and mitigate the impact of the global economic uncertainties on the local economy by reducing petrol prices, introducing tax incentives and other fi scal incentives, have helped to reassure investors. We are confi dent that with the commitment of our people, strict internal controls and good business management in place, we will be able to meet the challenges ahead. The softening of some commodity prices such as milk solids, which are expected to continue its decline, will help ease cost pressures.

The Group will keep pursuing its initiatives to further optimise its operations to mitigate as much as possible the impact of higher input costs. The Group will also constantly drive for higher sales and continue to protect and grow market shares from its competitors.

Major investments based on our strong Halal R&D capabilities have been planned in 2009 to introduce new products as well as to increase the capacity to meet the rising demand in the country as well as for exports. Innovation and renovation will remain key to offer consumers new, exciting, convenient, affordable and nutritious products. The Group will strive to ensure that its on-going yearly profi tability level will be protected moving forward. 2009 will undoubtedly be a tough year, but we are prepared for the eventualities and have in place strong tactical plans to cushion the impact of the economic uncertainty. We are aware that the only constant is change, and we are determined to be agile enough to surge ahead with great velocity.

ACKNOWLEDGEMENTS
On behalf of the Board, I would also like to express my deepest appreciation to the management and staff for their dedication, commitment and untiring contributions, and to our distributors and customers for their continued support and loyalty to our brands and to the Company. I also wish to put on record my sincere gratitude to my fellow directors for their counsel and support.

After 20 years at the helm, this is my last task as the Chairman of Nestlé (Malaysia) Berhad and I wish to take this opportunity to express my personal thanks to all of you, the shareholders, for your kind support over the years. It has been a truly fulfi lling experience, and I will miss it all.

I also wish to express my great appreciation towards Nestlé, from the Management Team at the Headquarters in Switzerland, to the local Board of Directors and all employees with whom I have progressed with, shared memories and witnessed many achievements.

It has been an honour to serve as the Company’s Chairman for the past two (2) decades. Although I will no longer serve on the Board, Nestlé will hold a special place in my heart as a Company that cares.

I wish the new Chairman of the Board every success and I trust that he will enjoy the same support and cooperation which I have had the pleasure to experience for many years.

I leave with a bittersweet combination of sadness and optimism, and look forward to cheer Nestlé on as it grows from strength to strength.